European Commission communication on competitiveness in single banking market

On 17 July 2026, the European Commission (the Commission) adopted a communication on strengthening the competitiveness of the EU banking sector.

Background

The Commission emphasises that it considers that a competitive banking sector is essential to finance growth, innovation, strategic autonomy and the EU’s major investment needs and sets out that this communication is linked to the Savings and Investments Union (SIU), the Competitiveness Compass and the recommendations of the Letta and Draghi reports.

Summary

The Commission highlights the following areas that it considers need to be addressed to improve competitiveness of the Banking sector:

• Progress and Remaining Challenges in the EU Single Banking Market: The Commission sets out that since the global financial crisis, the EU has strengthened its banking framework through the single rulebook, the Single Supervisory Mechanism, the Single Resolution Mechanism and stronger capital and liquidity requirements. Despite this progress, the Commission identifies three major challenges:
  • Fragmentation Along National Borders: Cross-border banking activity remains limited. Prudential requirements often require capital and liquidity to be maintained at both group and subsidiary levels, restricting efficient resource allocation. National gold-plating, divergent implementation of EU rules, barriers to mergers and differences in insolvency, taxation, consumer protection and anti-money laundering regimes also hinder integration.
  • International Standards and EU Specificities: The EU remains committed to Basel standards but recognises that Europe’s banking sector has unique characteristics, including a large number of banks and a greater reliance on bank lending than capital markets. The Commission argues that international standards should be applied in a way that better reflects these specificities and avoids disproportionate burdens on some institutions and activities.
  • Regulatory Complexity: The banking framework has become increasingly complex due to multiple layers of legislation, guidance and supervisory expectations. Reporting requirements are costly and often duplicative, while overlaps between microprudential, macroprudential and resolution frameworks create inefficiencies and increase compliance costs.

• A Way Forward for the EU Banking Sector: The Commission proposes measures to remove barriers to cross-border banking, including allowing more efficient allocation of capital and liquidity within banking groups, aligning the treatment of intragroup exposures, encouraging diversification of sovereign bond holdings and challenging unjustified national intervention in mergers.
  • International Standards and Proportionality: The Commission will review important aspects of the prudential framework, including the Basel output floor, the treatment of unrated corporates, mortgage lending, project and trade finance, software assets and remuneration rules. The objective is to preserve resilience while ensuring banks can finance strategic sectors and compete internationally. It also proposes a more proportionate regime for small and less complex banks and targeted amendments to the prudential framework for investment firms.
  • Simplifying the Regulatory Framework: The Commission intends to simplify Pillar 2 requirements, streamline the Minimum Requirement for Own Funds and Eligible Liabilities (MREL), simplify macroprudential capital buffers and strengthen coordination among supervisory, resolution and macroprudential authorities. It also seeks major reductions in reporting burdens through greater automation, data sharing and integrated reporting frameworks.

• Competitiveness as a Shared Responsibility: The Commission argues that improving competitiveness requires a cultural shift. Regulators, supervisors and banks should move away from excessive risk aversion and overly prescriptive compliance approaches, focusing instead on material risks and proportionate regulation. Banks are encouraged to take greater responsibility for applying rules without continually seeking additional guidance, while authorities should ensure that supervision remains supportive of innovation, growth and cross-border activity.

Next Steps

The Commission sets out that it intends to develop legislative and non-legislative reforms with the first proposals expected in the first quarter of 2027 and that stakeholder feedback will be invited as these reforms are developed.